Three Types Of Bankruptcy
Being in debt can be stressful. Many people end up with insurmountable amounts of debt because of changes in their financial state.
Initially, when purchases were made or loans were secured, the consumer may have been easily able to handle the payments. However, the loss of a job, a severe illness, or other unforeseen challenges can alter a person's ability to pay their debt on time.
Bankruptcy is a legal recourse for people who are in debt. Here is a bit of information about three types of bankruptcy to help you better understand your debt-relief options.
What Is Chapter 7 Bankruptcy?
Liquidation bankruptcy, which is also called Chapter 7, eliminates the filer's unsecured debts through the liquidation of their assets. Once you file for Chapter 7 bankruptcy, the court enacts a temporary stay on the debts that you currently owe. Thus, creditors stop all attempts to recover the debt. If you have assets that can be sold, the court appoints a trustee who is responsible for selling those assets to help pay your creditors.
Often, there are no assets available to be sold. Consequently, the Chapter 7 bankruptcy is typically discharged in a few months. Chapter 7 bankruptcy clients frequently have few assets and little income.
What Is a Chapter 13 Bankruptcy?
Adjustment-of-debts bankruptcy, or Chapter 13, is available for people who have a regular source of income that can be verified. The bankruptcy permits the creation of a payment plan that allows debts to be paid back over a period of up to 36 to 60 months.
With a chapter 13 bankruptcy, the sale of assets is generally not required. Instead, the filer keeps their belongings because the creditors are being repaid at least some of the owed debt. The portion of the debt that is not repaid is discharged when the payment plan has ended.
To qualify for Chapter 13 bankruptcy, you must make enough money to handle the payments and stay beneath the maximum debt threshold.
What Is Chapter 11 Bankruptcy?
Chapter 11 bankruptcy helps businesses reorganize their debts. It is the most complicated of the bankruptcy options.
Businesses who file Chapter 11 relinquish some of the decision-making authority over the company to the courts. Additionally, they must present a plan to reorganize their structure in a way that favors their creditors.
If you are thinking of filing bankruptcy for debt relief, schedule a consultation with a Chapter 7 bankruptcy lawyer or another bankruptcy attorney in your local area.